Officials of the Airlie Foundation yesterday denied allegations contained in a 1974 federal memo that the Virginia-based foundation "illegally sold" three government-financed films for more than $100,000 to Blue Cross-Blue Shield for distribution.
In a statement issued over the weekend and in an interview yesterday, Frank Kavanaugh, associate director of the foundation, said the allegation in a memo prepared on Airlie by a senior Health, Education and Welfare department official was "demonstrably false." Contents of the memo were contained in a story in Saturday's Washington Post.
Kavanaugh cited a 1968 letter from Lealon Martin, former director of the National Institute of Mental Health office of communications, which authorized Airlie to give Blue Cross-Blue Shield distribution rights for the films, which made up a series called "The Distant Drummer."
Martin said in a telephone interview, however, that he had no authority to permit Airlie Foundation to receive more than $100,000 from Blue Cross-Blue Shield as part of the transaction.
The Post story quoted from a 1974 memo prepared by Maurice J. McDonald, former director of audio-visual communications for HEW. In the memo McDonald sharply criticized the distribution agreement for "The Distant Drummer" series drawn up in 1967 between Airlie Foundation and Blue Cross-Blue Shield.
Federal investigators are looking into a number of Airlie Foundation's government contacts as part of a wide probe into alleged congressional influence-peddling. Former congressional aide Stephen Elko was quoted in a sworn federal court affidavit in December as saying that Airlie's director, Dr. Murdock Head, made payments totaling $87,000 to Rep. Daniel J. Flood (D-Pa.) and former Rep. Otto Passman (D-La.) for their aid in securing government funds.
Head, Passman and Flood have denied the allegations.
According to documents made available by Kavanaugh yesterday, Airlie Foundation gave Blue Cross-Blue Shield "exclusive distribution" rights for the "Distant Drummer" films in return for three payments by the medical society of $37,500 each to Airlie Foundation.
McDonald said yesterday that because Airlie received $390,572 in federal funds from HEW to make and distribute the films he regarded the resale of the distribution rights to Blue Cross-Blue Shield as improper. Despite McDonald's memo no legal action was ever taken against Airlie for the handling of the contracts.
Two former HEW contract officers involved in reviewing the "Distant Drummer" contract said in a interviews yesterday that they also felt the manner in which it was handled by Airlie was not proper.
The former officials said that unless Airlie misrepresented the origin of the films it was unlikely the distribution sale of the films was illegal.
The two officials, Michael White and Gerald Kurtz, said that on at least two occasions they discovered that Blue Cross-Blue Shield officials apparently did not know that the film series was funded by HEW.
"One time I was in Chicago and went to Blue Cross-Blue Shield head-quarters on a courtesy call because I knew they were distributiing the film," Kurtz said. "I went in and said how do you like our film and they said 'What do you mean your film and they said 'What do you mean your film. It's our film.'"